In the real estate market, in order to decrease its risk of loan default, a bank or other short-term lender often requires a substantial equity investment before it will issue a loan to a borrower. In addition, lenders still require a personal guarantee from the borrower in lieu of the equity investment or in addition to the equity investment. The combination of these two requirements has created a disconnect between the need for high quality credit and the market for loans.
An opportunity therefore exists for loan guarantee insurance, such as a guarantee, surety, or other type of insurance product for transferring or supporting any portion of a loan's risk or obligation and that would, for example, replace some or all of the equity investment and personal guarantee required from developers, redevelopers, investors, or any borrower needing typical bank or any lender financing.
An opportunity also exists to use a fronting agreement to provide loan guarantee insurance. Fronting is an approach for an insurance company, who underwrites an insurance policy to have national reach and licensing immediately in all states, by using a highly rated company to issue and stand behind the policy. Under a typical fronting agreement, a fronting insurance provider assumes little or no loss exposure; instead, financial arrangements are made to guarantee claims administration and payments. The fronting insurance provider issues the insurance policy, makes the filings required by state laws, pays premium tax and assessment fees, and cedes the entire risk to the captive, for example an underwriting insurance provider. The fronting insurance provider can be paid a percentage of the premium received by the re-insurer, the amount of which depends on the extent of their services.
Therefore, a heretofore unaddressed need still exists in the art to address the aforementioned deficiencies and inadequacies.